Maybe our way of working with boards is outdated, maybe we should rethink the role of the board - at least when it comes to startups. There is a lot to do when you look at a survey that we have just conducted among Danish fintech startups.
70 per cent of the fintech respondents say that they see boards as important for success - but less than half of them say their boards operate well enough and live up to their expectations.
There are many opportunities to improve the collaboration between fintech startups and their boards. A board of directors must benefit the company, and should help to set the strategic direction, guide and strengthen a company. However for many startups, the reality is different, the board is just an extra layer of governance where leaders have to make their exam presentations. And if there is one thing that a fintech startup in a high-tempo environment does not need, it is time-consuming meetings and internal presentations that do not create value for the company.
“It has been quite difficult for us to figure out how to use our board of directors,” one of the fintech directors puts it in the survey.
The challenge is that a board of directors is often a requirement from potential investors. Unfortunately, several of the respondents from various fintech startups have found that their board positions are filled by Venture Capitalists who are only there to control their own investment.
And even where this is not the case, the survey shows that some boards are composed in more random ways based on who you have access to in your network, rather than using a structured approach, where you look for board members who complement the startup at the relevant phase in their development.
Our analysis of the data on collaboration between boards and fintech startups, has led us to make the following three recommendations for consideration by fintech startup management, those who are considering setting up a board, or do not feel they have realised the full potential of their board of directors:
1. A necessary evil or a strategic sparring partner?
Many fintech startups perceive a board as a necessary evil; a requirement they need to meet to raise capital. It is also a culturally conditioned mechanism, ‘of course you have to have a board, all companies have one, don’t they?’
As a fintech startup, there are a number of pros and cons to having a board. Some of the benefits mentioned were, among other things, that a board of directors could provide the strategic and long-term guidance. Another advantage is the opportunity to utilise the experience of board members and use board members as advisors. Several directors of fintech startups also mentioned that a board member can provide access to his or her own network or even be used for PR and to market the company.
The disadvantage is that a board of directors can become an unnecessary governance layer, which unfortunately sometimes has limited knowledge of the often very specific topics a fintech deals with. A fintech startup should therefore ask itself three questions before assessing whether they are ready to have a board: Why do we need a board? What do we expect from the board members? What alternatives do we have to setting up a board?
2. Competencies: Random or carefully selected?
Several fintech startups commented that when moving in a heady startup environment, there is a need to replace and hire the right people frequently and efficiently. However, they rarely change their board of directors, and in fact only 42 percent of the respondents believe that their board of directors possesses the right mix of competencies.
A board in a fintech startup needs to have different competencies depending on which phase the company is in. If they are in the start-up phase, there will often be a need for competencies in the financial sector, product development and access to networks, whereas if the company is in its scaling up phase or internationalisation phase, then greater management experience and international network and experience will be needed. It is therefore important that a fintech startup approaches the hiring of board members in a very structured manner. A fintech startup should focus on getting the people with the right profiles into its board at the right time.
3. The collaboration: Should a board be strategic or operational?
A venture capitalist said in the survey: "If there is a need for the board to deliver operationally, then the management team of the fintech company does not have the right composition." There are pros and cons in relation to how operationally active a board should be.
Many will say that a board is too distant from the day-to-day operations to have to participate in it, but the situation is that a fintech startup often needs debate and inputs into the challenges that arise in the day-to-day operations. Board members must at least expect to participate more actively. There are many shifts in approach when working with fintech startups, and therefore there will often be a need for more interactions than just board meetings every three months. A chairman of the board must expect a CEO to be able to call on them every day of the week.
It is therefore essential that a fintech startup takes an honest look inward before forming a board of directors. It is also important that they approach the formation of a board in a structured manner, rather than appointing a board, just for the sake of appointing a board.
In addition, board members and the director of a fintech startup must expect to work very closely together, and it is therefore important to prioritise the personal fit over the professional fit. Maybe it's even time for us to rethink the board as a whole, and look at our boards with more agile eyes, and even consider options like project appointments to a board. In this way, we can ensure that boards do not hamper a startup that may need to change direction from year to year by having the same board members with redundant competencies to taking up space.